At its recent meeting, the TTC considered a staff report on the 2011 budget including Operating (the so-called conventional system’s day-to-day costs and revenues), Wheel-Trans and Capital (major repairs and expansion). The material in this report is only an overview of the full budgets to be presented at the Commission in January 2011. Many details remain to be seen, not the least of which will be the TTC’s reaction to the prevailing political mood after the October 25 election.
In this article, I will deal only with the Operating Budget, and will turn to the others in future posts.
The Commission adopted the report’s recommendations:
- That staff be instructed to take appropriate action to ensure that service commensurate with approved loading standards is in place commencing in January in response to the better-than-budgeted ridership this year (estimated at 476 million) and continued growth next year (projected at 487 million);
- That the Chief General Manager be authorized to pre-approve the hiring of workforce (required prior to City Council approval of the 2011 budgets) necessary to meet service requirements and specific capital program needs consistent with existing service standards and approved capital plans;
- That staff continue to develop and finalize the 2011 operating and capital budgets for presentation to the Commission at the January 2011 meeting, and;
- That the Chief General Manager be instructed to discuss with the City Manager appropriate strategies for the deployment of the projected 2010 TTC Operating Budget surplus to the maximum benefit of the TTC and the City.
Riding in 2010 has been strong, and the drop anticipated from January’s fare increase did not materialize. Indeed, total riding for 2010 is expected to be 476-million, 14m greater than budget, and 5m greater than 2009 actual. For many years, the TTC has anticipated its riding would track the employment levels in the Toronto Metropolitan Area. This trend (shown in the chart on page 2 of the report) has generally held true, but there are notable exceptions. This shows that other factors are at work and do disrupt the overall pattern.
Notably in 2010, employment fell, but TTC riding continued to rise. One observation related to me by TTC planning staff but not mentioned in this report is the disproportionate fall in employment in suburban areas, primarily in manufacturing, where TTC has a lower market share, with continued strong employment in the central city. Moreover, 60% of TTC riding is outside of the peak period. Although low employment would likely trigger a cutback in discretionary trips, again one must consider where the jobs are lost.
For 2011, and with no allowance for the effect, if any, of a fare increase, riding is projected at 487m, or 2.3% above the projected 2010 level. Service will be budgeted accordingly.
When reading TTC budgets, one can easily be confused by the reference base to which future, current and historical costs are compared. When the TTC says something will go up (or down) by X, they usually refer to the budgeted revenue or expense, not the actual value. In some years, where there is only a small variation, this is effectively the same thing. However, in years where riding, revenues and costs are not at budgeted levels, the references get tricky. In the following discussion, I will try to sort these out.
Information about year-to-date experience in 2010 can be found in the Chief General Manager’s Report, although the detailed figures do not appear in the online version.
Without a fare increase, revenue would rise by $53m or 5.6% relative to the 2010 budget. However, $35m of this is due to the strong 2010 riding, and the projected actual revenue is higher than the budgeted value. The remaining $18m of additional revenue (1.8% over the projected 2010 value) comes from additional riding. Revenue typically grows more slowly than riding because some customers trade up between fare media (single fare, tokens, passes) and existing pass holders ride more for the same price.
On the expense side, costs are projected to rise $106m (8%) relative to the 2010 budget, or $115m relative to the 2010 projected actual expenses which are lower than budgeted. This increase comes from several factors:
- $11m for the arbitrated wage increase to TTC employees. Although the increase was 3%, it took effect in spring 2010, and only a partial year’s effect is included in this budget. There is no provision for wage increases in the preliminary 2011 budget. This is consistent with past practice, but the absence of projections for the effect of fare and/or wage increases requires readers to make their own calculations.
- $13m for service adjustments mainly due to ridership gains as well as the proposed November 2011 implementation of the first phase of the Transit City Bus Plan. Note that the original 2010 budget included service cuts in both the spring and fall anticipating lost ridership. Part of this increase arises from comparison with budgeted, not actual figures for 2010.
- $5m for fuel and energy. The 2010 budget for fuel and traction power was $123m, but the projected actual cost is only $114m due to lower than anticipated fuel prices. This means that the increase from 2010 actual to 2011 budget is $14m, or 12%. Some of this arises from service increases, some from cost escalation.
- $15m for benefits. This is about 6%, again driven both by service increases and cost escalation. There is no provision for any negotiated increase in benefits.
- $5m for accident claims. This is about 10%.
- $11m for customer service initiatives.
- $20m for unamortized post-employment benefits.
- $26m for other increases including general inflation, cost of parts, depreciation on capital purchases that do not receive 100% subsidy and other costs.
Without any change in fares or subsidies, and no labour cost increases beyond the end of the current contracts, there would be a $53m shortfall in 2011. However, this is relative to the 2010 budget, not the 2010 projected figures. For 2010, the TTC expects a $44m “surplus” in the sense that its net subsidy requirement will be less than expected. The TTC includes the full 2010 budgeted subsidy as a starting point for 2011. I expect that this approach will lead to much confusion and mis-quoting of numbers as we work through the 2011 budget.
Here are the numbers consolidated into a single table.
2010/2011 TTC Operating Budget Comparison (millions) 2010 2010 2011 Budget Projected Budget Ridership 462 476 487 Revenue $ 941 $ 976 $ 994 Expenses 1,371 1,362 1,477 Subsidy Reqd 386 483 Subsidy Avl 430 430 430? "Surplus" 44 Shortfall 53
Note: The subsidy available for 2011 is assumed to be the same as the budgeted value for 2010, not the probable actual value. Depending on who is talking, we will hear either that the extra expense in 2011 is minimal (using the “surplus” from 2010 as a carry forward to offset the 2011 costs), or that there is a jump of $97m, or over 25%, in the subsidy requirement. The latter will be used as an excuse to beat the TTC about its profligate spending.
The TTC would do well to present its future budget details relative both to current budget and projected actuals so that the effects of current and future service, revenue and cost changes can be seen independently of each other. Put another way, the cost and revenue due to riding growth in 2010 is already part of the base system in any framework other than the artificial budget-to-budget one used by the TTC and City Finance staff.
There is an overall City target of 5% reduction in spending relative to 2010 budget. This implies a City subsidy for 2011 of $387m. If Queen’s Park comes through with $100m, a number suggested by one mayoral candidate, this will bridge the gap for one year, but the long-term problems remain.
Every 1% increase in labour costs adds about $10m to TTC expenses. As I write this, it is unclear what, if any, success Queen’s Park will reach in its attempt to negotiate wage freezes with the public sector, and legislation to impose such a freeze would doubtless form part of a robust provincial pre-election debate in 2011.
The TTC anticipates that a 10-cent fare increase would generate about $22m in new revenue. This gets a bit tricky given the experience of 2010’s jump in fares. Although everyone expected riding would drop, in fact it grew showing that the usual formulas regarding “fare elasticity” (if fares go up by X% then riding goes down by Y%) are affected by factors other than price. Indeed, the TTC has long argued that service is the most important determinant of riding. When fares go up and service goes down (the mid 1990s scenario), then riding will plummet.
Fare revenue for 2010 was budgeted at $888m, but will actually come in at about $923m, almost 4% higher. Looked at another way, the stronger ridership produced revenue at roughly the same level as the “standard” formula would derive from an additional 15-cent fare increase. Although almost all additional riding bears a cost in subsidies, it also reinforces the value of the TTC as a public agency. Budget discussions must focus on continued service quality and riding growth as these are essential to the city’s health.
The TTC operates its own system for pensioners, and there is a considerable gap between the level of reserves in this system and the actuarial exposure. Starting in 2012, if the TTC is required to make whole this deficit, there will be an additional $42m annual cost to the system for many years to come. Whether this payment will actually be demanded by Queen’s Park (whose regulations govern pension solvency matters) remains to be seen. The TTC’s position is that the transit system is not going out of business, and therefore should not be required to fully fund future liabilities from current assets, especially when the rate of return on investments is at an historic low level.
The staff report (at page 6) shows “pro forma” revenue, expense and subsidy statements out to 2013. These are meaningless because they do not factor in any change in labour costs, fares, subsidies or general policies about transit operations. Without question, transit will require more subsidies unless there is a fundamental change in the City and Provincial attitude to the role of transit in the GTA. The policy framework will determine whether the transit system thrives, muddles by, or enters another era of decline.
To correct information put about by some of the less well-informed local media and mayoral candidates, absolutely none of the operating subsidy paid to the TTC in 2010 comes from Queen’s Park or Ottawa. All of the gas tax, from both levels of government, goes to fund the Capital Budget. The total subsidy required just for TTC operations in 2010 exceeds the combined value of both gas taxes.